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Fizzling funds for the government – The Sugar Tax Levy

Price rises, reformulations, smaller bottles, sweeteners: a category in crisis or prepared for what’s to come? Two years after it was first suggested, the sugar tax levy comes into play this Friday and soft drinks is the first sector to take the brunt. A scheme to help the government raise additional funds whilst also attempting to tackle issues like obesity, soft drinks brands have been extremely savvy and shaken up their recipes to avoid having to pay up.

Whilst having avoided the tax, brands such as Lucozade have received extreme backlash from fans. Following the change of the Lucozade recipe to reduce the amount of sugar, sales dropped by a huge £25million (-8.4%) but the company says the levy is a gentle nudge to do the right thing.

However, this is the same reason why Coca-Cola has refused to change its formula after negative customer feedback – they learnt the hard way in 1985 when the company dropped New Coke after just 79 days following complaints. But, although it is not tinkering with its recipe, Coca-Cola is mitigating the impact of the sugar tax cost with reduced bottle sizes and an increase in pricing.

What’s next? It is likely that further tax levies will also be suggested this week – could it be confectionery, or maybe fast food? Will it be brought into play sooner given that the sugar levy will not raise the funds that the government once thought? No category in the food and drink industry is safe from the sugar levy and it could mean more reformulations and recipe changes to promote a healthier Britain, especially following the salt reformulation which first figures show has impacted the industry significantly. Salt intake has reduced by 15% over the last 10 years through the industry taking action, but as the obesity crisis seems to continue to grow a strong incentive is needed to ensure the industry acts quickly.

We have already seen reformulation taking place in the confectionery sector with recipe changes and smaller pack sizes to avoid a possible future tax – could this be the next category to be affected?

If manufacturers and suppliers are looking to change their recipes to avoid paying sugar tax (or for any other myriad of reasons)in the coming years, then they must consider the impact this could have on their corporate and brand reputation, particularly amongst their key target audience. Many brands have such well-established and iconic flavours that changing them could have a very negative effect (like Coke in 1985), but if they do they shouldn’t bury their heads in the sand. There are a lot of brands in the industry that have tackled the issue and the changes they are making head on because our era is all about being transparent and authentic and explaining why you have taken certain action and the associated health benefits. Consumers will react well to this and believe that these are brands they can trust – and that’s the imperative, even if the flavours are a little different.

The facts

This is not a tax on consumers and companies don’t have to pass the cost of the sugar levy on; although some are choosing to do so

The sugar levy makes soft drinks companies pay a charge for drinks with added sugar and total sugar content of five grams or more per 100ml (with a higher charge for those brands that include more than eight grams per 100ml)

The money raised by the government will be invested in giving children a brighter and healthier future including encouraging physical activity and balanced diets